THE 'FREE' DEBATE

THE 'FREE' DEBATE
Ad-supported music sites, file-sharing services
and a wealth of music posted online are
adding to the topic of "free" become a more common
talking point. As companies search for new
ways to monetize recorded music, expect free
music to be a common theme.
Chris Anderson, author of "The Long Tail,"
has a book on the topic coming out in July and
frequently posts about the concept of free at his
blog. "Free: The Future of a Radical Price"may
ignite interest - like Anderson's "The Long Tail"
- as well as fear in the music industry as people
ponder how to earn money if music is supposed
to be free.
Last February, Anderson's article on free for
Wired, "Free! Why $0.00 Is The Future Of Business,"
set the stage for much of today’s discourse.
"Once a marketing gimmick, free has
emerged as a full-fledged economy," he wrote.
"Offering free music proved successful for Radiohead,
Trent Reznor of Nine Inch Nails, and
a swarm of other bands on MySpace that grasped
the audience-building merits of zero."
But just as he did in "The Long Tail," Anderson
did not draw enough distinction between
marginal cost – which in the case of digital distribution
is zero – and average cost. When Anderson
writes that "the marginal cost of digital
information comes closer to nothing," what he
means is the marginal cost of distributing that
digital information. There are significant costs
in recording music. The cost of creating a brand
and inducing awareness, other considerations
Anderson understates, are both unavoidable
and considerable. An insignificant cost of creating
and distributing one more digital file does
not reflect the amount of investment to be recouped.
In theory, a company should set price equal
to marginal cost. Digital goods on the Internet,
though, are not akin to razorblades. In reality,
not all digital music can be priced at zero. The
information comes with real costs. Even if it
feels free (Nokia’s Comes With Music) it’s not
free.
But some digital music can be priced at zero.
Streams at MySpace are free to consumers.
Their value is promotional, not whatever scant
revenue share makes its way to the owner. Widgets
that stream an album can generate awareness
and, more importantly, harvest listeners'
email addresses.
Even some downloads can be free. Artists
may give away some downloads to raise awareness
and generate sales of the full release. Radiohead's
"In Rainbows" was given away for
tips, but its true value was the awareness it
raised; the album got an official digital and CD
release just a few months later. iTunes and Amazon.
com regularly give away free tracks and entire
label samplers.
Music industry blog Hypebot recently ran a
number of posts about how to use free music
to induce sales and build an artist. One post on
the subject was by Jim Mahoney of the American
Association of Independent Music. Mahoney
acknowledged the history of using free
music for promotional purposes, and he encouraged
artists and labels to use the strategy
wisely.
"Know why you’re offering your music for
free, get something tangible in return in terms
of special, unique, and focused attention (from
a select and limited group of partners who reach
your fans), and know your exit strategy (i.e. how
giving away your music is going to turn into real
profits) because the old model that says 'promotion
will result in sales' is now a fairy tale."
A post by The Orchard CEO Greg Scholl
touched upon the shortcomings of some free
models.
"The goal of the ad-supported services,
which make up the preponderance of new entrants
getting a lot of press lately, is to fill a
demonstrated market demand by giving consumers
a flexible, easy to use product that offers
good value. But, these services will only
survive if they find a way to do this while creating
new revenue streams that are accretive for
rights holders – just being something consumers
love is important, but not enough."
David Zaslav, CEO of Discovery Communications,
understands consumers want free content
but is trying to figure out if his company
will distribute either short-form or long-form
programming online. Suffice to say, Zaslav is
not just going to give it away. Quoted from a
post at paidContent:
"We don’t want to lose marketshare, but at
the same time, we don’t want to encourage free
content. Free didn’t work for newspapers. Free
didn’t work for the magazines. And it doesn’t
work for the broadcast companies. We have to
see how it develops. But ultimately, we all have
to follow the behavior of the consumer."
Before Anderson's "Free!" book comes out
in July, there is a conference in May called "The
Free! Summit." Anderson and TechDirt's Mike
Masnick are scheduled to speak.
—Glenn Peoples, Nashville